AICPA Ethics Ruling Addresses Tax Outsourcing

It was easy to overlook on the eve of a long holiday weekend, but new ethics rulings on outsourcing went into effect on July 1, 2005. The rulings adopted by the American Institute of Certified Public Accountants (AICPA) Professional Ethics Executive Committee address a member’s responsibilities when outsourcing services to third-party service providers.

According to the Wall Street Journal, the ruling requires the clients be informed before their confidential financial information is shared that their tax returns are being outsourced.

For accountants, however, it is that simple. The AICPA Professional Ethics Committee defines third-party service providers as any entity the member, individually or as part of a firm, does not control or any individual who is not employed by the member. This includes all independent contractors used by the firm. In addition, members who use third-party service providers are responsible for the work performed by the service provider. This responsibility does not extend to the planning and supervising of work beyond applicable professional standards, however.

The Wall Street Journal reports that tax outsourcing or tax-return outsourcing as it is also called has become a top issue in the face of concerns about identity theft, privacy and outsourcing. Some major firms say they do not do any outsourcing, however, accountants do admit the number of tax returns being outsourced, primarily to India, has been increasing over the past few years according to the Wall Street Journal.

Under the new rulings, members are required to notify the client, before their confidential information is shared and preferably in writing, that the member or member firm may use a third-party service provider in providing professional services to the client. Members are not required to notify clients of third-party providers used only for administrative support services such as record storage, software applications hosting, or authorized e-file tax transmittal services. Members are, however, required to enter into contractual agreements guaranteeing the confidentiality of client information with third-party administrative support providers.

The new rulings are effective for professional services performed on or after July 1, 2005. Professional services provider pursuant to agreements existing before June 30, 2005, and completed by December 31, 2005, are exempted from the ruling at the present time.

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